CEO Bedford: Frontier Airlines well on its way to cost-cutting goal

Denver Business Journal - by Ed Sealover

Date: Thursday, July 21, 2011, 8:29pm MDT
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Frontier Airlines has achieved 80 percent of its cost-cutting goals and expects to issue roughly $75 million in debt, parent company leader Bryan Bedford said in an interview Thursday night with the Denver Business Journal.
Bedford, president/CEO of Republic Airways Holdings Inc. of Indianapolis, flew to Denver earlier Thursday to speak with Frontier employees after the company announced a financial restructuring plan last month and then had 18 of its 59 Airbus planes knocked out by a hailstorm that struck Denver International Airport the night of July 13.
The hailstorm forced the cancellation of more than 200 flights, mostly in or out of DIA. But Frontier as of 8 p.m. MDT Thursday has only two cancellations on its schedule for Friday, both between Denver and Chicago.
Worried that employees would be concerned about the future of the company, Bedford said he found them to be resilient after the twin publicity setbacks. He also said he believes the company is in a good place going forward despite its disappointing financial performance in the first half of 2011.
Much of that optimism, he said, stemmed from the near-realization of $120 million in cost savings that Bedford announced he was looking to achieve in May after the company lost roughly $55 million in the first quarter, due largely to escalating fuel prices.
"We are probably well past the 80 percent mark in terms of actual deals," Bedford told the DBJ Thursday. "We're going to finish the restructuring effort and then we're going to focus on running the business."
The most prominent part of the restructuring involved getting Frontier's pilots in June to give up future pay increases and cut back on company 401(k) contributions and paid leave time in exchange for awarding the group an equity stake in Frontier's ownership.
Bedford said he is now making similar agreements with all other employee groups.
Other cost reductions so far, he said, have included:
-- Roughly $30 million in savings achieved by shifting 76-seat planes from Frontier's fleet to the fleets that Republic operates under different names for larger carriers, where the smaller planes can be more profitable. The airline also will shift some of its 100-plus-seat Airbus aircraft to those fixed-fee agreements during the slower winter season, Bedford said.
-- Agreeing to extend leases on Frontier's aircraft in exchange for lowering costs right now, a move Bedford said will save the company some $25 million.
-- Tightening up contracting terms with Frontier's manufacturers of original equipment to save roughly $20 million.
-- Using upgraded technology and tighter scheduling to achieve $15 million in fuel conservation savings.
-- Saving some $10 million in the cost of advertising and distribution of flight-booking over third-party Internet sites, which Bedford has asked for a break in costs.
While some of the savings goals remain ongoing, such as the employee contracts and price reductions with equipment manufacturers and flight-booking sites, Bedford said he is confident they will get finished.
"So far we haven't had any of our suppliers decide that their business would be better without Frontier Airlines in the picture," he said.
Frontier's board of directors already has agreed to put another $75 million worth of liquidity into the business in the form of a secured debt facility, Bedford said.
He had spoken earlier this year of finding further investors to finance Frontier as well. But with the company achieving its cost-saving goals, that is not an immediate priority, he said.
Frontier does hope to create networks of alliances with similarly sized airlines in other countries in order to increase its capacity to fly passengers internationally, Bedford said. But that also is not a task for the immediate future, he said.
"There's clear interest out there, but people want to see this restructuring done first," he said.